In order to work out direct costs for tax purpose you should take the stock you started with, at the beginning of the year or the business, and then add all of the stock purchased during the year (from your receipts) this then gives you a total available for sale.

If you then do a stock check it will tell you how much is left unsold. Taking stock unsold from the total available for sale will then tell you how much you have sold through the year and this becomes the cost of sale figure.

Q

How can I tell if stock has been stolen, or lost

By calculating your estimated gross profit margin, as a percentage, you will know how much you should have made per sale. If you then calculate your actual gross profit margin you will be able to work out the difference. This has either been stolen, lost or wasted - or you held a sale and discounted prices without accounting for it.

eg if you buy an item at £10.00 and sell it at £20.00 your gross profit margin is 20.00 - 10.00 / 20.00 x 100 = 50% if you do this calculation with a years sales and direct costs you should end up at 50% - if you calculate it at 45% then 5% of your stock has disappeared! (or some of your receipts / invoices / cash has gone missing)

Q

What can I include in Cost of Sale

These are things that are directly connected to a job or sale such as: materials bought, stock for retail or reselling, work in progress, direct labour on a subcontract basis, equipment hire for a specific job.